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KBR: Failing Upwards

Up is down, night is day, and now, in the best tradition of George Orwell’s 1984 newspeak KBR — the company that was the subject of a recent Department of Defense Inspect General report that found that the Army broke federal procurement rules in 2004, when two commanding generals improperly directed a contracting officer to pay millions of dollars in fees to KBR Inc., when funds should have been withheld, per the language in the contract with KBR - has been awarded its first task order under the newest version of LOGCAP.

For those who don’t know, LOGCAP is the mother of all logistics support contracts. Without it the U.S. Army simply can’t function.

The award also comes just a week after the Army announced that KBR would not be awarded $25 million in bonuses under the LOGCAP III Iraq support contract because KBR “failed to meet a level deserving of an award fee payment for work it did during the first four months of 2008.” Although the Army did not specifically cite it when announcing the withholding of the payment KBR’s “failed” work occurred during the time a Green Beret was electrocuted in a barracks shower in Iraq KBR was responsible for maintaining.

KBR was informed of the new LOGCAP task order award, just one day after executives told shareholders about the lost award fees.

The cost-plus, fixed-fee contract, announced Tuesday, is for one base year ($571 million) plus four option years, that, if exercised, could be total $2.8 billion, for work to be done in Iraq.

KBR will provide the following:

· CLSS (Corps Logistics Support Services) at multiple locations in Iraq. Services will include vehicle maintenance (organizational and direct support levels), Supply Support Activity, Central Issue Facilities, Self Service Supply Centers, Ice Plant Services, some Air Terminal Operations and Bulk Fuel Operations to include fuel laboratories.

· Postal Services which will include supporting Joint Military Mail Terminal functions, distribution and transportation of mail, augmentation of Army Post Offices, mail handling equipment, mail processing, and receiving and sorting mail.

As a result of criticisms leveled against KBR, the Army Materiel Command ended the previous LOGCAP III contract, which KBR held, and replaced it in 2007 with the current LOGCAP round, dubbed “LOGCAP IV”. Unlike the past three rounds, under the current version three contractors (KBR, DynCorp, and Fluor Corporation) were awarded contracts, whereupon the three could compete for future task orders. LOGCAP IV has one base year and nine option years with a total potential of $5 billion per year for three of the contractors but not to exceed $150 billion over the lifetime of the contract.

Little noted is the fact that LOGCAP IV itself is managed by a contractor (Serco-North America) and now is being split geographically between KBR, Dyncorp, and Fluor , which reduces the benefits of a multiple award Indefinite Delivery/Indefinite Quantity (IDIQ) contract that was intended to create competition on each task order.

The inimitable Ms. Sparky, who is to KBR and similar companies, what Sherlock Holmes was to Dr. Moriarty, was the first to break the news, in advance of the official notification, that KBR would receive the award.

But whether this is a good idea is far from settled. Before going any further let’s acknowledge that LOGCAP workers out in the field do critically important, if unrecognized, work such as providing laundry services and bath facilities, food service, mortuary affairs, sanitation, facilities management, morale, welfare and recreation, information management, transportation, medical services, engineering and construction, and power generation and distribution.

For KBR this is not just about money but also a chance to burnish its reputation, which its management has done a good job of tarnishing over the years thanks to billions of dollars in unsupported charges, shoddy electrical work, hazardous burn pits, and failure to protect its employees from being raped, just to name a few things.

KBR sent out an all hands email to its employees that says, “With so much negative news about KBR and the fact that we have not won a LOGCAP IV task order, it is with great pride that I am able to announce that KBR is now in the LOGCAP IV business.”

To some KBR resembles Mario Puzo’s Godfather in that it is the position of making the Army an offer it can’t refuse As the DoD IG report on the decision not to withhold payments to KBR when it should have done so under the terms of its contract, “The decision to postpone the withholding of funds was influenced by contractor claims that the withholding might adversely impact their ability to provide vital support services to the troops.”

Put another way, last May the Commission on Wartime Contracting held a hearing where Jeffrey Parsons, executive director of the Army Contracting Command had this exchange with Commission Ervin:

But it sounds like you are saying that if we were talking about fewer undefinitized contract actions, with less money at issue, that that would have been one thing, but because the number was so large and because the value we are talking about was so large, it is essentially a too big to fail issue here. I want to know what you meant by that and why the Army made that determination. And, by saying that it posed a serious risk to the contractor’s ability to support the warfighter, does that mean that had that money not been withheld, that KBR would not have supported our troops in the field?

Mr. Parsons. Sir, that was the unknown. To be quite honest, there was a lot of concern. When you took the total amount of money that had been, that was undefinitized at the time, and applying that withhold would have been a significant amount of dollars, additional dollars that were already either being withheld in some nature or tied up in billing.

So the Head of the Contracting Activity at that time, after taking input from many, many different sources, decided that the risk associated with applying that withhold, given the potential operational impacts, in his judgment, was not the right move to make. So that is why we pursued that deviation.

Charles Tiefer, a professor of government contracting at the University of Baltimore Law School and a member of the Commission on Wartime Contracting said, “Giving KBR this contract while denying them award fees for their enormous problem of accidentally electrocuting soldiers amounts to rapping them on the knuckles on one hand while handing them a multibillion dollar deal in the other.”

Not mentioned in all the current news coverage, according to says Charles Smith, who oversaw the LOGCAP contract during the early days of the Iraq war as chief of the Army Field Support Command, is that “the intent of LOGCAP IV was to create the competitive possibility of losing work due to poor performance. Setting a precedent of sticking with the first contractor dilutes competition incentives.” If the Army abandons the competitive incentives of LOGCAP IV, some informed observers think we will be back to the problems of LOGCAP III.

Additionally, the award in Iraq was to comply with evaluation criteria, including past performance. The integrity of the contract is damaged if the combatant commanders call the outcome, no matter the evaluation criteria.

Thus far, not all members of Congress are pleased with the KBR award. Congressman Edolphus Towns (D-NY), who heads the House Oversight Committee, wrote to Defense Secretary Robert Gates to question the Army’s decision. Senator Byron Dorgan, (D-ND) who chaired several Senate hearings on electrocutions of soldiers in Iraq resulting from shoddy contracting work by KBR, said the Army’s past LOGCAP, or logistics, contracts had produced “the greatest waste, fraud and abuse perhaps in the history of our country.”